ABA Journal

Banking Law

Occupy Offshoot Buys Up Debt with Aim of Forgiveness

By Debra Cassens Weiss

Nov 15, 2012, 11:29 am CST

How magnanimous to buy up debt with other people's money and then forgive it.

By B. McLeod on 2012 11 15, 1:13 pm CST

Have they thought this through? In turn, would not these debtors have to then report the funds they received as income? If they can't afford a $150K mortgage, what makes this group think they can pay income taxes on $150K?

@2 Mortgage Debt Relief Act allows exclusion of debt cancellation from income for your homestead. That being said, it ends this year and the group doesn't appear to even be focusing on mortgages. However, it's my understanding that the general rule is if you're insolvent you don't have to include cancelled debt as part of your income (up to the point you become solvent).

By Mole Mountain on 2012 11 15, 4:54 pm CST

If they want to pay off my law school debt I'll be happy to find a way to pay the tax.

By Myself on 2012 11 15, 4:59 pm CST

@5 - Ain't that the truth? I have spare organs, haha!

By Another Andy on 2012 11 15, 4:59 pm CST

Hint: When you buy debt at pennies on the dollar, the lender has probably given up on collecting.

By Dr Phun on 2012 11 15, 7:33 pm CST

There is no tax consequence if they don't write it off. They just hold the debt until the SOL passes and notify the debt holder that no one can collect on it going forward. I think occupy is nuts but i am ok with this.

By tim17 on 2012 11 15, 7:35 pm CST

I work with a lot of low income folks. I can assure you that there are a lot of companies that buy this junk debt and then work hard to collect. They take a lot of default actions for a few hundred or thousand dollars and then tack on a bunch of fees and costs. Apparently enough people will be hounded into paying some of it that it is cost effective.

By Desert Wren on 2012 11 15, 10:47 pm CST

I stopped paying on $20,000 of credit card debt in 2001. It has been sold too many times to count and they are still trying to collect on it even though the statute of limitations has expired and they can no longer report it to the credit bureaus.